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Michael Lewis' new book, Flash Boys, has not only ignited a debate about high-frequency trading, it has prompted a few traders to put their money where their opinions are. They are betting against shares of the
Nasdaq OMX Group.
NDAQ 1.254242290098864%Nasdaq Inc.U.S.: NasdaqUSD68.62
0.851.254242290098864%
/Date(1481320800370-0600)/
Volume (Delayed 15m)
:
937959AFTER HOURSUSD68.62
%
Volume (Delayed 15m)
:
15475
P/E Ratio
24.07719298245614Market Cap
11195806953.9694
Dividend Yield
1.8653453803555815% Rev. per Employee
940377More quote details and news »NDAQinYour ValueYour ChangeShort position
As Barron's reported Tuesday, that trading pattern began, suspiciously, even before the book was launched.

Nasdaq (ticker: NDAQ), which operates the all-electronic Nasdaq Stock Market, is viewed by many investors as the purest way to trade the HFT controversy. The stakes have increased now that such trading—and the allegation that it amounts to front running—is attracting attention from the FBI and the New York State attorney general.

Though the stock is bouncing higher Wednesday after a sharp drop on heavy volume yesterday, Nasdaq's options continue to attract skeptical trading in anticipation the stock price reverses direction. This bearish options trading pattern reflects a debate among investors about how much of Nasdaq's revenue and earnings are related to high-frequency trading.

At least one analyst, who requested anonymity, estimates that about 25% of Nasdaq's revenue, and about 33% of earnings, are attributable to high-frequency trading. Others contend HFT is a small part of Nasdaq's $2 billion annual revenue, ranging from $5 million to about $50 million. The exchange is not responding to requests for on-the-record comments, which exacerbates the debate about HFT's impact on Nasdaq's financials, and probably is a key reason driving bearish options trading.

In recent trading, Nasdaq's stock was up 59 cents, or about 2%, at $36.37, yet investors were aggressively buying Nasdaq's May $34 puts. So far, about 1,013 contracts have traded. Investors have also bought 500 Nasdaq's May $35 calls to position for the stock to decline. At the same time, investors have sold Nasdaq's June $38 calls, which have traded 1,000 contracts. Investors are willing to wager that the stock will not rise above $38 by June, and that it will fall below $34 by May expiration. If the stock follows the script now being written in the options market, the bearish puts will increase in value, and the bullish call options will decline.

The fact that bearish options action is occurring even as the stock rallies is an indication of the sharp debate among investors about Nasdaq's exposure to high-frequency trading as well as the impact of Flash Boys on the future of HFT.